May 19, 2003

Still Bemused

I'm still bemused by the fact that there were 3.3 percent fewer hours worked in the nonfarm business sector in 2003:I (the first quarter of 2003) than in 2000:I. Such a prolonged shrinkage in hours worked--given America's robust demographics--is an extraordinary labor market experience for the United States.

Well, 2000:1 was the height of an unsustainable boom, so is that really the best point to measure from?

E.g.: hours worked for 2003:1 were well above hours worked at any point during 1998, which was considered a pretty strong labor market at the time, already well into the boom. But of course one must take growth of the labor force since then into account to get the real picture.

So, out of curiousity I went to the data for the last entire business cycle, available through Fred at the St Louis Fed.

Starting with the previous cycle peak in 1990, I set up a ratio for the index of hours worked over the size of the entire civilian labor force. Indexing the ratio for the 1990 business cycle peak gives 1.0, and changes in the ratio after that show the change in hours worked relative to change in the size of the civilian over-16 labor force.

Interestingly, the ratio for 2003:1 is 1.012 -- which means hours worked relative to the size of the labor force today still are greater even than at the peak of the prior business cycle. (Which is maybe not exactly consistent with the "it's the worst labor market in 30 years ... 50 years ... since Hoover" argument now making the rounds in some quarters).

The current 1.031 is above the average for the entire previous trough-to-peak business cycle of 1.028 (from 1991:1 to 2001:1), and about where things were in 1996 -- which people considered a pretty good year at the time.

So, perspecitve: things certainly could be much better, but objectively they are far from very bad relative to recent history and the corresponding point after the last recession (not to mention the recession of '81, when my little ratio was down to 0.89)

"Such a prolonged shrinkage in hours worked --given America's robust demographics -- is an extraordinary labor market experience for the United States."

I dunno. Two years after the NBER-dated cycle peak of 1990 my little demographically-adjusted hours worked ratio was down by 0.04. And two years after the NBER-dated cycle peak of 2001:3 the ratio is down by the exact same 0.04. FWIW.